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Pension Garnished After Foreclosure

I am being forced to take early retirement and can no longer afford my mortgage. Can my pension be garnished as a result?

I work for a local government in the state of New York. I have a home with two mortgages, and I am up to date with my payments. I might lose my job if I don't take early retirement and I am concerned because, after retirement, I won't be able to afford my mortgage payments. In state of New York if my house goes for forclosure could you please tell me if the bank will be able to garnish my pension? Also I did file for bancruptcy in 2009 so I am not able to file again. If I retire and have a direct deposit with a different bank can it help? Should I have my direct deposit made into an account in someone else's name? Please help me since I have to file for my retirement soon. Keep in mind that my income will be less than half of what I am making today. Thanks,

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Bill's Answer
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Updated: Oct 20, 2014

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Highlights

  • Garnishing Social Security benefits or pensions for consumer debt is not allowed, generally.
  • Avoid commingling exempt and non-exempt funds in one account.
  • Consult with an attorney in your state to learn more about your rights.

Involuntary attachment of Social Security benefits or pensions for payment of consumer debt is not permitted under federal law, and is therefore forbidden in all states, including New York State. These benefits generally retain their exempt status even after they are deposited into a bank account, so a creditor cannot levy a bank account if the debtor can demonstrate that the money in the account came from pension or Social Security payments. We often recommend that people segregate those funds from by depositing the benefits into a separate bank account to avoid commingling of exempt and non-exempt funds, which can make defending an exemption claim much more difficult.

You should consider calling the attorney who filed your 2009 bankruptcy case; given the extreme reduction in your income, and the resultant financial hardship, he may be able to reopen and amend your previous case, allowing you retroactively include these mortgages in your bankruptcy discharge. I do not know enough about your situation to tell you if such a strategy is feasible, but considering the potential benefit, I encourage you to call your attorney as soon as possible to inquire about adding the mortgages to your 2009 bankruptcy case.

Even if you cannot add these debts to your bankruptcy case, you should take comfort in knowing that your retirement income is almost certainly exempt from garnishment by banks who hold your mortgages. However, to be on the safe side, you may want to put your money in an account with a bank to whom you do not owe money; I recommend this step to anyone who is struggling with debt, as you don't want to tempt fate by entrusting your money to a creditor, even if that money is legally exempt from attachment.

I hope this information helps you Find. Learn & Save.

Best,

Bill

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